A post by Cynthia Larsen, Can you find out how much the other buyer has offered? has inspired this post. In the comments I discovered, to my surprise, that many brokers had not dealt with escalation clauses. There were opinions about disclosure, and ethics and the rights of buyers and/or sellers, and some opinions about what agents might or might not do, give the circumstance of multiple offers.

First, the normal disclaimer, I am not an attorney, never sat for the bar, and haven’t personnally consulted with an attorney in regards to this issue or this blog post. That said, here in the Northwest we’ve gone through several years and with no little trial and error, have developed a document that virtually all agents in Washington use when preparing an offer where other offers might exist.

The Northwest Multiple Listing Service (NWMLS) is the mls for most of Washington State. NWMLS has over 2,000 member offices and over 21,000 registered agents.

In the 1990’s we agents saw a need for some direction when preparing an offer you knew would have competition. But it wasn’t until 2003 or so that companies started coming out with their own addendums addressing the issue. Windermere, John L Scott and Coldwell-Banker are the big three around here and all of them had versions. Our small office had an attorney draft 4 possible clauses depending on the wishes and situation of the buyer. The biggest problem was that agents’ “made up” wording was full of stories and rarely were complete enough to ever be enforceable. Our four variations addressed whether the competing offer’s “price” meant the stated price or the escalated price, and also addressed the issue of a contingent offer verses the non-contingent offer. There were conflicting thoughts on what the buyer’s limit or “up to” clause meant.

To say the least, with all of the individual company forms floating around, it got confusing and then some. Finally, the NWMLS came up with a from they provided “as a courtesy to members” in hopes of helping agents have something in common. And like all forms provided by the NWMLS there are disclaimers and instructions. I provide the complete package (as revised in July, 2010) here for your review: Price Escalation Addendum to Purchase and Sale Agreement.

You certainly may not agree with the concepts involved in the process we use here. It took us some time to accept the sharing of details of another offer. It usually takes a buyer several episodes of coming in second or third or even fifth when vying for a great property. It takes grit to view a property for a few minutes, pay an inspector to get over there now, and waive financing, along with being willing to go $X,000 over a competing offer. But for a few years it was routine and we see it more than a little bit here in 2011.

Keep in mind that the buyer’s offer expresses some rules they wish the seller to agree to, but like anything else, the seller is entitled to respond in any manner they please. We’ve seen sellers and their agent reply, “Since you think it is worth $XXX,000 by your stated limit, we will simply counter you at that price. The escalation addendum is removed.”

And many areas are seeing multiple offers on bank owned properties. Has anyone seen a bank counter offer lately without multiple changes and conditions of their own?

I’m curious to learn how other areas of the country deal with multiple offers.